Having a great credit score provides you with the necessary financing that you may need to afford certain luxuries such as a house, a car and loans from financial institutions. Without a good credit score, you may not have access to any of this. In addition, starting with a bad credit score means it can take a while to build up to a respectable score. Therefore, it is wise to make sure you practice wise financial habits early so as to not put yourself in a precarious financial situation.
Fortunately, if your credit score is currently on the lower end of the spectrum, there are fast ways to build credit and make yourself look presentable to financing companies that you may approach. Here are some ways to build your credit quickly.
Always Pay Down Your Balance
One of the leading institutions responsible for calculating credit scores is FICO, and according to them, approximately 30 percent of a FICO credit score is based upon how much you currently owe. Therefore, it would behoove you to always pay down your balance. However, there is one important factor to consider. It is not just about how much you owe. What is more important is how much you owe when compared to how much credit you have. This term is defined as your credit utilization.
Generally, a rule of thumb is to never spend more than a third of your available credit, and only go over if it is an absolute emergency or if you are positive that you can pay it off. Spending more can lead to complacency in terms of paying back debts, or it can result in you needing to make lower monthly payments to juggle minimum payments across cards, therefore resulting in a remaining sizable balance monthly. Be wise with the credit given to you, and do not assume that it is just free money.
This same concept should apply with loans. Companies such as Barron Advisors contain experts who offer debt consolidation loans to reduce the burden of interest that is tacked onto loans you borrow. This helps your credit score by enabling you to pay off more per month without the interest extending the loan’s shelf life.
Check For Errors on Credit Reports
Many people do not know this, but according to the Federal Trade Commission, approximately 5% of consumers have errors on their credit reports. Also, about 1 in every 4 credit reports contain errors in them that can marginally affect a credit score in a negative way. Therefore, you should be prudent in reading your credit score and finding any discrepancies to bump your score up. A free report is available every 12 months from the three major credit bureaus which are TransUnion, Equifax and Experian.
No matter how small the increase may be, you can easily and quickly bump your score simply by making sure that you were not the victim of a mistake-riddled credit report.
Become an Authorized User on a Credit Card Account
Becoming an authorized user on a credit card account is another quick way for you to build credit. This is because when you are an authorized user, the entire history of the account will be added to your credit report, and you do not even need to physically be in possession of a card. FICO does not factor in authorized users into the algorithm that determines a credit score. In many cases, this can result in a significant increase in your credit score.
It is advised that if you plan to go down this route to make sure that the account has a history of responsible decision making. You should practice caution when looking at an account that is relatively new and doesn’t have a clean track record. So if this account were to go into a negative status, this will go to collections and this responsibility is now on your shoulders as well.
Get a Credit Builder Loan
While no one likes talking about loans and how much money they owe to the government, there are types of loans that can potentially help you. A credit builder loan will have the bank set up a savings account which the funds that are dispensed will be deposited into. Until the last payment has been made, you are restricted to these funds. Basically, if a bank gives you a fixed amount of money, it will be deposited into a savings account, and you pay monthly with interest until the full amount has been paid. Once the last payment is made, you have access to this account and the payments you made are reported to credit bureaus.
This is one option on the table, but companies like Barron Advisors, for example, can also provide you with debt consolidation loans as well.
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